Liquidity and Bond Market Spreads
Imperial College London - Accounting, Finance, and Macroeconomics
Alex P. Taylor
Manchester Business School
EFA 2003 Annual Conference Paper No. 879
Recent research by Elton et al (2001) argues that investment-quality defaultable debt spreads reflect three factors: expected losses, risk premiums and taxes. In this paper, we sort bond price data on liquidity proxies (quote frequency, bond age and issue size) and show that an important additional component of spreads is a liquidity premium.
Number of Pages in PDF File: 37
Keywords: Credit Spreads, Liquidity, Asset Pricing, Bond Yieldsworking papers series
Date posted: August 1, 2003
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